Providing coverage of Alaska and northern Canada's oil and gas industry
June 2020

Vol. 25, No.26 Week of June 28, 2020

Court sides with AOGCC on appeal of its Cook Inlet gas leak order

Kristen Nelson

Petroleum News

Alaska Superior Court Judge Eric A. Aarseth has affirmed the Alaska Oil and Gas Conservation Commission’s Other Order 150, which denied a petition from Hollis French for a hearing on a complaint of waste for gas leakage from an 8-inch line carrying fuel gas to Platform A in Cook Inlet.

French, formerly an AOGCC commissioner, has filed a motion for reconsideration with the court.

The leak occurred in the winter of 2017.

In its Other Order 150, the commission said it investigated the leak at the time it occurred, and initially believed the source was upstream gas, which is an AOGCC-regulated resource. Had the gas leak been from an upstream source, the commission said, it would have constituted waste and AOGCC would have instituted an enforcement action against Hilcorp, which is the operator.

“However, AOGCC’s investigation ultimately revealed the leaking gas had been purchased by Hilcorp from a third-party provider, Harvest Pipeline (Harvest), and was being shipped back to Platform A,” the commission said.

French appealed to Alaska Superior Court, citing three points: he said AOGCC erred in ruling that it had no jurisdiction over gas sold by a vendor; erred in ruling it had no jurisdiction over gas metered and severed from a property; and erred in ruling that it had no jurisdiction over gas Hilcorp purchased from Harvest Pipeline.

Judge’s ruling

The judge ruled that it is within AOGCC’s expertise to determine whether waste exists under Alaska statute. “AOGCC’s interpretation is reasonable and therefore this Court must defer to it.”

French argued AOGCC improperly found it did not have jurisdiction over the 2017 Cook Inlet gas leak and asked the court to rule the commission did have jurisdiction and order the commission to assert that jurisdiction. He requested the court “independently review the merits of the AOGCC’s decision and rule that the Cook Inlet gas leak constituted ‘waste’” under Alaska statute and was within the agency’s jurisdiction.

The judge said AOGCC requested that the court “apply the rational basis” in reviewing its determination that the 2017 gas leak did not constitute waste and affirm Other Order 150.


Hilcorp discovered a leak in February 2017 in a pipeline transporting gas from shore to Cook Inlet, the judge said in his ruling, and “determined that the leaking gas was purchased by Hilcorp and passed through a custody transfer meter. French was an AOGCC commissioner at the time,” and shortly after his removal from the commission, he petitioned the commission to hold a hearing on the gas leak, alleging that the leak constituted waste and the commission had jurisdiction over the leak based on its statutory duty to prevent waste.

The commission denied a hearing and entered Other Order 150, which stated that its investigation found the leak did not constitute waste “because the gas passed through a custody transfer meter and was metered and severed from the property,” making it no longer a recoverable natural resource.

In its decision the commission said that it initially believed the leak was from upstream gas, and if that had been the case, it would have constituted waste and AOGCC would have begun an enforcement action against Hilcorp.

AOGCC said its “investigation ultimately revealed the leaking gas had been purchased by Hilcorp from a third-party provider, Harvest Pipeline (Harvest), and was being shipped back to Platform A.”

Citing its primary purpose as maximizing resource recovery, AOGCC said in its decision that “like every other state’s oil and gas conservation regulatory authority, AOGCC regulates waste occurring upstream (occurring before oil or gas is metered and severed from the property) in connection with drilling, exploration, and production activities. Neither AOGCC nor any of its counterparts in other states has ever attempted to extend its jurisdiction over waste to gas which has been sold by a vendor,” the commission said.

Legal standards

The judge said the Alaska Supreme Court reviews agency interpretations of statutes using either reasonable review or independent judgement review, with the parties in this case disagreeing as to which standard applies.

“When the interpretation at issue implicates agency expertise or the determination of fundamental policies within the scope of the agency’s statutory functions, Alaska courts apply the rational basis standard, where the Court gives deference to the agency’s interpretation so long as it is reasonable. The Alaska Supreme Court gives more deference to agency interpretations that are ‘longstanding and continuous,’” the judge said.

Independent judgment review is applied where specialized agency knowledge isn’t so crucial, the judge said, with the Alaska Supreme Court citing issues which turn on statutory interpretation rather than policy consideration and agency knowledge and expertise.

Agency expertise

“AOGCC argues that because its duties include the obligation to determine whether or not waste exists, a waste determination is squarely within its expertise,” the judge said, while “French argues that AOGCC’s expertise is ‘directed towards questions of well engineering and geology’,” and “argues that because this case concerns the extent of AOGCC’s jurisdiction, ‘the knowledge and expertise of AOGCC ‘affords little guidance’ on this question.’”

“French does not further specify how AOGCC does not have direct expertise to make a waste determination,” the judge said.

“This Court agrees with AOGCC that a waste determination is within its expertise,” the judge said, and therefore defers to “AOGCC’s waste determination if it is reasonable pursuant to the rational basis standard.”


The judge found AOGCC’s interpretation of waste to be consistent with statute and said the statutory language “provides a reasonable construction that the legislature intended to give AOGCC broad authority to employ its expertise and determine what constitutes waste.”

Referring to the Alaska Supreme Court’s deference to “longstanding and continuous” agency interpretation, the judge said AOGCC’s finding in this case “is consistent with its past regulation of waste ‘upstream (occurring before oil or gas is metered and severed from the property) in connection with drilling, exploration, and production activities.’”

“Other Order 150 complies with AOGCC’s waste determination duty,” he said.

Independent judgment

French argues that the definition of waste “is a question of statutory construction, and therefore the Court should analyze the state independent of the agency’s interpretation,” based on the Union Oil Co. of California v. Department of Revenue case, in which there were two statutes and the court had to decide whether those statutes were consistent with one another.

The judge said the situation in this case is not the same.

“Instead, we are presented with reviewing AOGCC’s investigation and determination of whether or not waste existed. A waste determination requires specialized agency judgment, and thus the independent judgment standard is inapplicable,” the judge said.


Separate case required AOGCC hearing

On April 7, Alaska Superior Court Judge Herman Walker Jr. remanded Other Order 151 to the Alaska Oil and Gas Conservation Commission, ordering it to fix a date for a hearing on Hollis French’s petition on waste.

This case involved a petition by French for a hearing on a case of waste from BP well DS02-03B, where there was a gas release following mechanical failure. The commission denied French’s request for a hearing and he appealed to Superior Court.

The judge sided with French, saying that by statute the commission is required to fix a date for a hearing, provide notice of the hearing, hold the hearing and issue an order.

The commission held the hearing June 23.

French reviewed the legal issues around the hearing and said he didn’t think there was any doubt that there was an uncontrolled gas release at the well and said waste should have been the first thing the commission dealt with, not the last.

The issue arises out of mechanical integrity issues at Prudhoe Bay wells, the subject of the commission’s Other Order 149.

The order, as amended April 1, 2019, noted that over 18 months BP Exploration (Alaska), the Prudhoe Bay field operator, “experienced sudden well head rise on two Drillsite 2 wells — DS 02-03B (April 2017) and DS 02-02A (December 2018). Each incident resulted in permanent damage to surface casing and the flow tree assembly when the wellhead rose abruptly and impacted the well house. In a third incident on March 30, 2017, an injection well, L5-13, failed during a mechanical integrity test resulting in permanent damage to the casing strings. In all three incidents well bore fluids were released at the surface.”

Other Order 149, as amended, is the commission’s instructions to BPXA on dealing with the mechanical integrity issues.

A situation report issued by the Alaska Department of Environmental Conservation on the 2017 incident said the team responding to the venting of gas from a well on Drill Site 2 of the Prudhoe Bay oil field succeeded in killing the well and thus achieving control of hydrocarbons escaping from the wellhead. The team killed the well by pumping salt water containing potassium chloride and mixed with methanol into the well, thus offsetting the upward pressure that had been driving gas from the well (see story in April 23, 2017, issue of Petroleum News).


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